AGOA: Is It About Opportunities or Arm-Twisting?

The African Growth and Opportunity Act (AGOA) needs to be reauthorized next year and discussions about how to improve it are picking up steam. There is a lot that is unknown—when it will be renewed, for how long, and whether the renewal will be as “seamless” as everyone says they want.

But one thing on which many seem to agree is that Congress needs to modernize the conditions that determine country eligibility. In a recent speech, US Trade Representative Michael Froman identified that as one of four things he would like to see in an AGOA extension bill. That same day, in testimony before the House Ways and Means Trade Subcommittee, my colleague Benjamin Leo advocated conditioning AGOA benefits on improvements in the business environment. He and Vijaya Ramachandran propose an elaborate process of annual certification that is similar to the MCC approach here. Alternatively, the AFL-CIO would like to beef up the conditions relating to worker rights and democracy.

I have some concerns about this push to “modernize” AGOA’s eligibility conditions, however. First of all, AGOA already has a lot of conditions. To be eligible for AGOA, countries must first meet the conditions associated with eligibility for GSP and then meet further conditions (see Box 1). In going through the list, you might note that there are already multiple conditions relating to worker rights and the business climate. With the exception of democracy and human rights, however, enforcement of these conditions has been relatively restrained.

So will further tweaking of the conditions or stricter enforcement make a positive difference? I doubt it. The AGOA carrot is just too small for most countries to entice them to undertake significant reforms. There were only 14 countries with AGOA-eligible exports of more than $10 million in 2013 and most of it was oil, which otherwise faces a tiny tariff. Worse, beefed up conditionality could do harm if countries lose benefits or if uncertainty about the stability of benefits deters investment.

Today, many more African countries have nearly full access to the US market than are able to take advantage of it. This is primarily because of supply-side challenges that Ben and Vij amply document in their paper (link above). If these countries are not already addressing their supply side changes to take advantage of that market access, how would threatening to revoke it prod them to do so?

So what is wrong with using AGOA to open doors and let African governments choose whether to walk through or not? Unlike aid, where taxpayer dollars are at risk and conditions are appropriate, the United States isn’t the one losing when AGOA-eligible countries choose not to take advantage.

Box 1

GSP mandatory conditions for country eligibility:

Cannot be communist (with some exceptions, e.g. WTO membership)

Cannot be party to a commodity cartel, e.g. OPEC

Cannot be party to a preferential trade arrangement with another developed country that could have a “significant adverse effect on US commerce”

Cannot have expropriated property of US citizens or corporations without compensation or arbitration

Cannot have failed to enforce arbitral awards in favor of US citizens or corporations

Cannot aid or abet or grant sanctuary to international terrorists

Must be taking steps to afford “internationally recognized worker rights”

Must “implement any commitments it makes to eliminate the worst forms of child labor”

The president can waive the last five conditions if he determines that it is in the national economic interest.

GSP discretionary criteria include:

Assurances that the country will provide “equitable and reasonable” market access, as well as access to commodity resources and refrain from engaging in “unreasonable export practices”

Adequate and effective protection of intellectual property rights

Reductions in trade distorting investment practices and policies and in barriers to trade in services

And, under AGOA, countries must be making continual progress toward establishing:

“engage in activities that undermine United States national security or foreign policy interests”

engage in “gross violations of internationally recognized human rights,” or provide support for international terrorism, and must cooperate “in international efforts to eliminate human rights violations and terrorist activities”